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Research Report

Oil & Gas in Brazil: A NEW SILVER LINING?

Décio Oddone
Copyright Date: Jul. 1, 2016
Published by: Atlantic Council
Pages: 20
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Table of Contents

  1. (pp. 1-2)

    Brazil today faces unprecedented challenges. In the midst of the biggest recession in the country’s history and the impeachment trial of President Dilma Rousseff, Petrobras—the giant state-owned oil company—is going through difficult times as well. But problems bring opportunities.

    The energy industry in Brazil is on the verge of its biggest transformation in decades. Petrobras is reducing its investment and the sector is transitioning from a hydroelectric power system to, effectively, a hydrothermal one.¹

    When Petrobras was founded in 1953, Brazil was an agrarian country. Only 36 percent of the population lived in cities. The industrial sector accounted...

  2. (pp. 3-3)

    The success of deep-water exploration has given Brazil the lead in the number of very large oil fields discovered in the past twenty years. The presalt layer, where recoverable volumes may exceed 40 billion barrels, catapults Brazil near the top of the list of countries with large reserves of oil and gas.

    Following the discovery of the pre-salt layer, Petrobras benefited from the estimated increase in reserves (see figure 1) and its position as the sole operator of new production sharing contracts. In 2010, the company obtained approximately $70 billion in the largest capitalization process ever.² Production forecasts increased significantly,...

  3. (pp. 4-7)

    The oil, gas, and petrochemical industries present significant barriers to entry and high geological and financial risks. They also require long-term commitments. Therefore, confidence in the stability of regulations is a crucial driver of investment.

    Brazil does not lack resources to be explored, nor does it lack opportunities. It has stable political institutions with a history of honoring contracts. But building trust depends more on the stability of regulations over time than on the introduction of new laws or rules. Thus, the country can attract huge investment once the markets recover confidence in the existing system. That means Congress must...

  4. (pp. 8-9)

    To quickly tap into Brazil’s potential, measures to encourage investment must be taken. Recommendations for the E&P, downstream, distribution, logistics, natural gas, and gas fired power generation sectors are presented below.

    The first step to stimulate investment in the sector is to revise the production-sharing contracts for the pre-salt layer. The government needs to end the requirement that Petrobras be part of all consortia, allow different operators to come in, and reassess the tasks assigned to the company (Pré-Sal Petróleo S.A.—PPSA) responsible for managing the contracts.

    Ending Petrobras’s requirement to operate in all pre-salt fields is already the target...

  5. (pp. 10-11)

    The oil and gas sector has the potential to attract capital and leverage economic growth in Brazil. The pre-salt layer represents the biggest untapped opportunity in the country. The recommendations in this report, if implemented, would trigger an immediate surge in investment, especially in oil exploration and production. This is possible even in the current context of low oil prices. Results would include stimulating the economy, creating jobs, generating tax revenue, and supporting economic growth.

    Traditionally, private actors are reluctant to buy assets or make investments during uncertain times. But the current economic and political turmoil in Brazil can have...